DOJ Sues Ivanka’s Ex-Business Partner for Massive Fraud

The Justice Department is suing a friend and former business partner of Ivanka Trump for his alleged role in schemes to defraud the federal government out of millions of dollars in tax liabilities on his father’s estate.

Filed last month and reported here for the first time, the suit follows an August 2017 POLITICO investigation of alleged financial wrongdoing by New York businessman Moshe Lax and glaring irregularities in the Internal Revenue Service’s handling of a $27 million lien on his father’s estate.

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The suit, which seeks more than $60 million in unpaid tax liabilities, was brought in the Southern District of New York by lawyers in the Justice Department’s tax division. It alleges that Lax, his sister Zlaty Schwartz, and his late father, Chaim Lax, engaged in a series of complex “sham transactions” designed to fraudulently evade tax liability.The government alleges the family members undertook 10 separate schemes “designed to hide the Lax family assets from the IRS and other creditors and make it appear as though the Estate was insolvent.”

At a time when Democrats are working to make corruption a midterm campaign issue and a jury deliberates over whether to convict President Donald Trump’s former campaign manager for tax fraud, the suit threatens to further the perception that the Trump family and their closest associates operate in a corrupt milieu.

Though the complaint does not mention Trump or accuse her of wrongdoing, Madison Avenue Diamonds, the business that Trump helped run for years under the name Ivanka Trump Fine Jewelry, figures prominently in the government’s case.

One of the 10 schemes outlined in the complaint is Lax’s alleged transfer of a roughly $21 million interest in Madison Avenue Diamonds from his father’s estate to a holding company for nothing in return.

A lawyer for Schwartz, Megan Brackney of Kostelanetz & Fink, declined to comment. Lax did not respond to requests for comment and court records do not list an attorney for him. The White House referred requests for comment to a firm that handles PR for Trump’s brand. “The issues in this case have nothing to do with Ivanka or the Ivanka Trump brand,” said a spokesperson for Trump’s brand, who asked not to be identified by name. “These licensing arrangements were terminated by the Ivanka Trump brand in 2016 prior to Ivanka entering government service.”

But the government alleges that Lax fraudulently transferred a portion of equity in Madison Avenue Diamonds at some point between 2008 and 2012. During that period, Trump remained involved with the business. At one point, Trump also had an ownership stake in Madison Avenue Diamonds, according to a deposition shegave in an unrelated case that was obtained by POLITICO last year.

Madison Avenue Diamonds is not named as a party in the complaint, but the holding company to which Lax allegedly transferred part of the company is.

In the complaint, the government names private creditors of Madison Avenue Diamonds as parties because they may have competing claims on the assets the government wants to seize.

Although no Trump entities are named as parties, Trump Organization General Counsel Alan Garten told POLITICO last summer that the Trump family business was “still owed a significant amount of money” by Lax from the jewelry venture.

It is not clear whether Lax has paid out on the debt since then. Neither Garten nor Trump Organization spokeswoman Amanda Miller responded to questions about whether Lax still owes money to Trump or any Trump family entities. The spokesperson for Trump’s brand said the brand would not be going after Lax or Madison Avenue Diamonds for any outstanding debts but did not address a question about whether any debt had been repaid.

The suit alleges that Lax’s father began the schemes in the years before his 2008 death so that his heirs could inherit his fortune without paying his unmet tax obligations. Lax and his sister are accused of continuing the schemes with a series of elaborate transactions meant to keep the assets from their father’s estate hidden from the government and other creditors.

Lax, Trump’s partner in her first independent business venture, was once close to the Trump family. He first introduced Trump to her to her future husband, Jared Kushner, at a gathering of real estate heirs he convened in New York a decade ago. Trump writes at length of meeting Lax and creating Ivanka Trump Fine Jewelry with him in her 2010 memoir, “The Trump Card.”

“My new associate was an entrepreneur through and through,” she wrote of Lax in her memoir. “I admired that about him.”

Lax has also told at least one associate that he has discussed financial strategy with Trump’s father, President Trump.

In November 2016, two days after he attended the Trump campaign’s invite-only election night victory celebration, Lax reportedly escorted one of his creditors past a throng of protesters outside of Trump Tower to a kiosk selling Ivanka Trump Fine Jewelry in the building’s lobby. According to the creditor, – who relayed the episode on the condition of anonymity because he said he feared retaliation from the Trump administration – Lax said he wanted to strike while Trump’s name was hot. Lax said he planned to take over a jewelry company in White Plains, a suburb of New York, and use it as a vehicle to turn Ivanka Trump Fine Jewelry into a $500 million brand.

When the creditor expressed disbelief that Lax, who was then already dealing with serious financial problems, was plotting a major business expansion, Lax said he would not need to use his own money and explained that he had learned how to go through an “expedited bankruptcy” process without losing his own assets. Lax asked the creditor rhetorically who he thought had taught him how to do that, and then he pointed up to the upper floors of Trump Tower, indicating the president-elect, who has filed for bankruptcy six times.

The White House referred a request for comment about whether President Trump has offered financial advice to Lax to the Trump Organization, which did not offer comment.

Lax’s plans for expanding Ivanka Trump Fine Jewelry never came to pass. Trump’s team says she severed her licensing arrangement with Lax before she entered the White House. Her apparel ventures have reportedly suffered from her association with her controversial father – this summer, she shuttered her fashion company in an effort, she said, to focus more closely on her work in Washington.

But Lax’s relationship with the first family has continued.

Lax attended last January’s Inauguration festivities and introduced himself to fellow attendees as a business partner of Trump’s, according to a Republican operative who interacted with him there. The operative recalled Lax that weekend showing off photos of the swearing-in ceremony on his phone that were taken from seats close to the front of the viewing area. “Judging by that, the level of access was pretty high,” the operative said.

The next month, Tiffany Trump attended a launch party for his latest venture, a retail business in Manhattan called Code.

Meanwhile, Lax’s government contacts during the Trump era have extended beyond the executive branch. Last year, Lax successfully sought an introduction to a senior member of Congress and used the meeting to advocate on behalf of Israeli mining billionaire Dan Gertler, according to the person who brokered the meeting. The person spoke on the condition that the lawmaker’s name and other details of the brief meeting be withheld because of the sensitivity of the conversation.

In December, the Trump administration went on to impose economic sanctionson Gertler under the Global Magnitsky Act for corrupt mining deals in the Democratic Republic of Congo.

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